Executive Briefings

Kraft Foods Builds Supplier Relationship Management Bridge

By: Global Logistics & Supply Chain Strategies 12.01.2005

In 2004, Kraft Foods embarked upon a sustainable growth plan to turn the company into a more focused, nimble and cost-effective global competitor. Part of this plan included a new supplier relationship management (SRM) "bridge" within Kraft's global procurement organization. Although the term SRM is used to refer to anything from spend management to supply base monitoring, Kraft defines SRM as a bridge that connects Kraft and its suppliers, enabling them to elevate the value derived from the relationship to new heights, while avoiding the common pitfalls of the buyer-supplier relationship. The SRM bridge requires the entire Kraft organization to view its selected suppliers as partners in the company's success. There have been three pillars to Kraft's SRM bridge:

1. Determining the optimal relationship: Kraft uses a supplier portfolio management process by which senior management, procurement and other managers ensure that supplier assets, capabilities, and expertise are leveraged to support Kraft's strategic business goals. An "elevating supplier value" steering team advanced a new legal and business framework for governing key supplier engagements in a manner that supports the broader sharing of intellectual property, as well as providing a balance of reward and cost-competitiveness, between Kraft and its suppliers. Kraft also set up a SRM Center of Expertise that promotes cultural change at Kraft to speed up adoption of the SRM bridge. Kraft's definition of SRM states that there is an optimal type of relationship for each supplier, and Kraft uses a tool called relationship segmentation assessment (RSA) to define each relationship based on 10 factors divided into two categories: (1) the means by which financial value can be generated from the relationship, and (2) the degree to which Kraft and the supplier organization fit across strategic, geographic, cultural and other dimensions.

2. Developing the optimal relationship: For each selected supplier the Center of Expertise establishes a standard set of roles, responsibilities, and decision making and issue resolution accountabilities called a governance structure. The challenge was to establish clearly defined roles that would produce results without changing reporting lines or organizational structure. The governance structures have avoided disrupting business and damaging the relationship by establishing joint procedures to resolve issues. The governance framework requires Kraft and the supplier to assign an individual to champion the alliance. A steering committee of senior leaders directs the strategic focus of the alliance and provides business area support on all initiatives. A senior executive from both Kraft and the supplier are appointed to oversee and champion the alliance relationship. The SRM bridge includes joint business planning to identify breakthrough opportunities that will drive strategic benefits to both companies, as well as a formal way to capture and act on ideas and opportunities which may have previously lay dormant.

3.Maintaining the optimal relationship: To help suppliers grow their business with Kraft, the company has created "structured ideation" to match supplier capabilities with existing business needs and priorities. Executives throughout the company specify business needs and opportunity areas to be targeted using a common format that provides clear requirements to suppliers. All solutions are showcased to relevant senior executives who are held to a strict deadline for go/no-go decisions to suppliers. Finally, Kraft uses a value and performance monitoring process to track supplier portfolio performance in a way that supports continuous improvement of supplier relationships and drives creation of new value. Besides tracking traditional KPIs, the process monitors performance indicators in these four critical realms: operational performance, relationship quality, strategic value and financial value. The process provides Kraft's global organization with supplier performance data on a regular basis, allowing for more in-depth analysis of individual supplier performance as well as comparative analyses across suppliers.

In 2004, Kraft Foods embarked upon a sustainable growth plan to turn the company into a more focused, nimble and cost-effective global competitor. Part of this plan included a new supplier relationship management (SRM) "bridge" within Kraft's global procurement organization. Although the term SRM is used to refer to anything from spend management to supply base monitoring, Kraft defines SRM as a bridge that connects Kraft and its suppliers, enabling them to elevate the value derived from the relationship to new heights, while avoiding the common pitfalls of the buyer-supplier relationship. The SRM bridge requires the entire Kraft organization to view its selected suppliers as partners in the company's success. There have been three pillars to Kraft's SRM bridge:

1. Determining the optimal relationship: Kraft uses a supplier portfolio management process by which senior management, procurement and other managers ensure that supplier assets, capabilities, and expertise are leveraged to support Kraft's strategic business goals. An "elevating supplier value" steering team advanced a new legal and business framework for governing key supplier engagements in a manner that supports the broader sharing of intellectual property, as well as providing a balance of reward and cost-competitiveness, between Kraft and its suppliers. Kraft also set up a SRM Center of Expertise that promotes cultural change at Kraft to speed up adoption of the SRM bridge. Kraft's definition of SRM states that there is an optimal type of relationship for each supplier, and Kraft uses a tool called relationship segmentation assessment (RSA) to define each relationship based on 10 factors divided into two categories: (1) the means by which financial value can be generated from the relationship, and (2) the degree to which Kraft and the supplier organization fit across strategic, geographic, cultural and other dimensions.

2. Developing the optimal relationship: For each selected supplier the Center of Expertise establishes a standard set of roles, responsibilities, and decision making and issue resolution accountabilities called a governance structure. The challenge was to establish clearly defined roles that would produce results without changing reporting lines or organizational structure. The governance structures have avoided disrupting business and damaging the relationship by establishing joint procedures to resolve issues. The governance framework requires Kraft and the supplier to assign an individual to champion the alliance. A steering committee of senior leaders directs the strategic focus of the alliance and provides business area support on all initiatives. A senior executive from both Kraft and the supplier are appointed to oversee and champion the alliance relationship. The SRM bridge includes joint business planning to identify breakthrough opportunities that will drive strategic benefits to both companies, as well as a formal way to capture and act on ideas and opportunities which may have previously lay dormant.

3.Maintaining the optimal relationship: To help suppliers grow their business with Kraft, the company has created "structured ideation" to match supplier capabilities with existing business needs and priorities. Executives throughout the company specify business needs and opportunity areas to be targeted using a common format that provides clear requirements to suppliers. All solutions are showcased to relevant senior executives who are held to a strict deadline for go/no-go decisions to suppliers. Finally, Kraft uses a value and performance monitoring process to track supplier portfolio performance in a way that supports continuous improvement of supplier relationships and drives creation of new value. Besides tracking traditional KPIs, the process monitors performance indicators in these four critical realms: operational performance, relationship quality, strategic value and financial value. The process provides Kraft's global organization with supplier performance data on a regular basis, allowing for more in-depth analysis of individual supplier performance as well as comparative analyses across suppliers.